What does a high credit utilization rate typically indicate?

A high credit utilization rate typically indicates high credit risk. This measure reflects the ratio of the amount of credit you are using compared to your total available credit. When this ratio is high, it suggests that an individual is relying heavily on credit, which can signal financial distress or difficulty managing expenses. Lenders often view this as a warning sign that the person may be over-leveraged and could have trouble making repayments, increasing the perceived risk of lending to that individual.

A low credit utilization rate is generally more favorable, as it suggests better credit management and financial stability. It indicates that a person is not overly reliant on credit resources and likely uses them responsibly. Hence, a high utilization rate points to the opposite of good financial health, aligning clearly with the concept of high credit risk.